Coinbase is moving forward with international expansion plans at a time when it is under growing regulatory pressure in the U.S.
On Thursday, Coinbase announced that it received approval from the Bermuda Regulatory Authority (BMA) to begin offering perpetual futures products on its Coinbase Advanced platform. Coinbase says that the move will meet what it says is strong demand for crypto derivatives, which the company estimates make up 75% of global crypto trading. On the day the news was announced, Coinbase’s stock closed 3.5% higher at $75.16
Coinbase is deepening its global footprint since it began speeding up plans to increase operations outside the United States earlier this year as part of its “Go Broad, Go Deep” expansion strategy. While there aren’t plans to fully exit the U.S., the lack of regulatory clarity is motivation to expand business internationally, according to CEO Brian Armstrong.
“It’s really good to see that 83% of G20 countries now either have crypto legislation in place or they’ve started the process, so that’s where we’re investing our resources around international expansion this year,” said Armstrong in an interview with CNBC on September 7.
While talks in the U.S. are underway for new cryptocurrency regulations, other countries have moved ahead in laying out rules for the sector, including the European Union and Hong Kong. Armstrong and other crypto executives have pointed to these jurisdictions to showcase how the rest of the world is getting ahead of the U.S. on the regulatory curve.
Even if Coinbase has no plans to leave the U.S., it does have an incentive to step-up its search for more markets abroad. On June 6, Coinbase was hit by an SEC lawsuit that accused it of violating federal securities laws, as well as parallel lawsuits by ten state regulators.
The case is working its way through the courts, but uncertainty around it has been a consistent drag on Coinbase’s stock performance.
If Coinbase loses the case, they could face a potential loss equivalent to 36% of their net revenue in the second quarter of 2023, said Mark Palmer, a senior equity analyst at Berenberg Capital Markets. In its latest 10-Q filing, Coinbase reported a net revenue of $662.5 million, meaning it could face a potential loss of $238.5 million if the SEC wins.
With most of its revenue generated in the U.S, Palmer said it “makes sense” that Coinbase would look to expand internationally. At the same time, he says that the process will not be easy.
“We think it makes sense for Coinbase to lean into international initiatives, but we also think it remains an open question whether the company will be able to execute what appears to be a very difficult pivot,” said Palmer.